Draft 2019

Capital Budgets

Presenters: Mike Mayes,

Dawn Schellenberg,

Frank Wu, Lisa Ellis,

Kevin Yaraskavitch

Date: January 28, 2019

Agenda

1. What does Council need to know for the

2019 budget?

2. Update budget recommendations

3. Project reconsiderations

2

What is the capital budget?

The capital budget is the annual plan for the

purchase and financing of the Town's capital

assets.

Capital assets include infrastructure, lands,

buildings, machinery and equipment,

significant plans and studies.

3

What are tangible capital assets?

• Non-financial assets having physical

substance

• Used in the production or supply of goods

and services

• Have an economic (useful) life > 1 year

• Used on a continuing basis and not normally

for resale

• Meet the minimum threshold value

TCA’s are recorded at cost

4

TCA Exclusions

• TCA below thresholds

• Feasibility studies, business cases,

environmental assessments that are not

directly related to the acquisition of TCA

• Intangibles (patents, trademarks, copyrights)

except for system software

• Natural resources (trees, woodlots)

• Historic and cultural assets (works of art)

• Inventories held for resale (including land)

5

58% of the capital budget

is funded from ARF

The Asset Replacement Fund (ARF) was

created in 1998

Goal: to ensure that Newmarket can afford to

replace future capital assets as required

Contributions were based on estimated annual

contribution requirement – initially 100% for

water, wastewater and fire; 50% for other

assets (which grew to 100% by 2008)

6

Asset Replacement Fund

- year end balances

2013 2014 2015 2016 2017

In $ millions

Town -$ 17.9 -$ 20.2 -$ 21.5 -$ 20.0 -$ 18.9

CYFS - 0.2 - 0.5 - 0.1 - 0.4 - 0.3

Library 1.1 1.1 1.1 1.1 1.2

Tax-supported -$ 17.0 -$ 19.6 -$ 20.5 -$ 19.3 -$ 18.0

Water $ 19.2 $ 20.9 $ 21.9 $ 22.9 $ 24.3

Wastewater 12.3 14.6 17.0 19.1 22.3

Stormwater n/a n/a n/a n/a - 0.6

Rate-supported $ 31.5 $ 35.5 $ 38.9 $ 42.0 $ 46.0

TOTAL $ 14.5 $ 15.9 $ 18.4 $ 22.7 $ 28.0 7

Asset Replacement Fund

- indicators

Capital reserves and reserve funds as a % of

accumulated amortization

2013 2014 2015 2016 2017

Tax-supported -4% -7% -10% -8% -10%

Rate-supported 50% 53% 55% 58% 42%

Combined 10% 9% 8% 9% 11%

8

Asset Replacement Fund

- annual contributions

2013 2014 2015 2016 2017

In $ millions

Town $ 7.7 $ 7.8 $ 8.3 $ 8.8 $ 7.8

CYFS 0.6 0.9 0.9 0.9 0.9

Library 0.2 0.2 0.2 0.2 0.2

Tax-supported $ 8.5 $ 8.9 $ 9.4 $ 9.9 $ 8.9

Water 2.6 2.3 2.5 2.7 2.7

Wastewater 2.1 2.7 3.1 3.4 3.7

Stormwater n/a n/a n/a n/a 0.9

Rate-supported $ 4.7 $ 5.0 $ 5.6 $ 6.1 $ 7.3

TOTAL $ 13.2 $ 13.9 $ 15.0 $ 16.0 $ 16.2 9

Asset Replacement Fund

- indicators

Contributions to capital reserves and reserve

funds as a % of amortization expense

2013 2014 2015 2016 2017

Tax-supported 74% 85% 82% 81% 69%

Rate-supported 99% 94% 113% 212% 244%

Combined 86% 88% 92% 106% 101%

10

Asset Replacement Fund

- current practices

Global fund

• ARF funding is limited to the total balance

from all sources

• Tax-supported ARF has borrowed $31 million

from the rate-supported ARF

• Contributes to capital carryovers

2019 Policy Change

• Restricts use of ARF to the capital budget

11

Implementation of ARF Policy

ARF 2018 budget contributions

Policy changes Budgetary increases

Draft 2019 contributions

Town $ 8,019,000 -$ 3,842,000 $ 467,000 $ 4,644,000

CYFS 1,115,000 200,000 1,315,000

Library 224,000 224,000

Water 3,127,000 - 561,000 49,000 2,615,000

Wastewater 3,941,000 - 1,150,000 1,006,000 3,797,000

Stormwater 341,000 94,000 435,000

$16,767,000 -$ 5,553,000 $1,816,000 $13,030,000

12

Asset Management:

Implementation Plan Objectives Governance: program oversight and building Town wide asset management frameworks such as risk

and levels of service, and building organizational capacity including through skills development

Capital Program Decision-Making: improving the decision-making process for capital spending by

developing lifecycle models, incorporating the models into the asset strategy, and linking the planned

spending with service levels

Data and Information: improving data and information through development of standards, and

integrating technology systems to support the asset management system (program)

Maintenance Management: improving maintenance practices and implementing a new computerized

maintenance management system (CMMS)

Optimizing Asset Management: ongoing works to further advance asset management practices and

incorporating results of previous improvements into long-range financial plans including rates and

reserves

…Future State

• Financial plans and asset reserves should be driven by the asset strategies identified

in the asset management plans.

• Secondly; capital plans for the shorter term (e.g.10 years) should be an outcome of

the asset management plan and be linked to the financial plan.

Results

Theneedforanassetmanagementsystemhasbeenrecognized

andthereisevidenceoftheorganiza: ons

intenttoprogressit.

The organiza8on has iden8fied the means of systema8cally and consistently achieving the asset management

requirements.

The organiza8on is developing its asset management system, and can demonstrate that asset management

prac8ces are being progressed with credible and resourced plans in place.

The organiza8on's asset management ac8vi8es are fully developed, embedded and are effe

c

8 ve for its purposes.

The organiza8on can demonstrate that it systema8cally and consistently achieves relevant requirements set out in PAS 55/ ISO

55001.

The organiza8on can demonstrate that it is systema8cally and consistently op8mizing its asset management

prac8ces, employs leading prac8ces, and achieves maximum value from its assets, all in alignment with the organiza8on's objec8ves

and opera8ng context.

Aware Establishing Developing Competence Op8mizing and

Excelling

MaturityLevel 1 2 3 4 5

AM Vision Current State Implementa on Plan

Development Charges

22% of the capital budget

is funded from Development Charges

(DCs)

What are Development

Charges

• The principle of development charges is

that it helps growth pay for growth.

• Development Charges are regulated by

the Development Charges Act.

• In order to have to collect development

charges, municipalities need to conduct a

study to justify it’s rate every 5 years. .

What are Development

Charges, exactly?

Fees imposed to maintain service levels in the

face of growth.

Service levels: Replacement cost of average

capital inventory over the past 10 years.

Growth: Net new population and employment

moving to the municipality.

17

x

DC Funding Envelop

Service Level per Person ($)

Net Population and Employment Growth (#)

= Funding Envelope

18

What Services Can

Development Charges Fund?

• General Government

• Library

• Fire Services

• Recreation

• Yards & Public Works Fleet

• Parking

• Engineered Services

• Waste Collection

19

What Services Can’t

Development Charges Fund?

• Cultural and entertainment facilities

• Tourism facilities

• Parkland acquisition

• Hospitals

• Headquarters for general administration

• Landfill sites and solid waste

• Computer equipment

• Rolling stock with a useful life of 7 years or

more

20

Projects are funded on case-

by-case basis

Calculations are made for each project ensure

that:

– Development charges exclusively pay for

growth.

– Municipalities do not double dip.

21

New Service Facility

Project Cost $10,000,000

Less Grants $0

Less Replacement $5,000,000

Less 10% Reduction (if applicable) $500,000

Less Available DC Reserves (Collected by past DCs) $1,000,000

Less Post Period Benefit (Collected by future DCs) $0

Total DC Eligible Cost $3,500,000

22

Maximum DC Recovery

Service Statutory Maximum

DC Cost Recovery

General Government 90%

Library 90%

Recreation 90%

Waste Collection 90%

Parking 90%

Fire Services 100%

Yards & Public Works Fleet 100%

Engineered Services 100%

23

How Growth Pays for Growth

Capital Costs: Development Charges

(Roughly $6,500,000 per year)

Operating Costs: Assessment Growth

(Roughly $750,000 year)

24

Conduct a High Level Asset

Management Plan

• Can we afford the ongoing operating cost?

25

Life Cycle of a Capital Project

26

Capital Carryovers Why?

• Tendering process taking longer

• Slower than expected developer construction

progress on new parks development projects

• Delay in regional road work progress within

Yonge St. & Davis Dr. corridors

• Staff capacity to deliver capital projects while

performing regular operating activities

• Changes in priorities

• Transitioning to multi-year capital budget

27

Capital Carryovers to 2019

and later years

Year of Budget

Approval

# of projects new or

carried over to 2018

Completed, cancelled or consolidated

in 2018

New or carried over to 2019 and beyond

# of projects 2019 cost in

$ millions 2020+ cost in

$ millions

2017 and earlier

209 92 117 $ 35.1 $ 4.2

5 $ 2.6

2018 80 18 62 $ 17.9 $ 3.0

289 110 184 $ 55.6 $ 7.2

2019 request

68 $ 27.6

252 $ 83.2

28

Rating System

Criteria:

1. Priority - formally defined outside the budget

process – up to 9 points

2. Movement towards the desired service level

– up to 3 points

3. Business case – economic return on

investment – up to 5 points

4. Risk reduction – based on a before/after

matrix of probability and consequences – up

to 24 points

29

Budget Updates Corrections

Active Transportation Implementation Plan -

Harry Walker Parkway (ENG4)

– Shown as $40,000 funded by DC`s

– Should be $200,000

• $40,000 from DC`s

• $160,000 from grants

Fleet Replacements (Road3) has been

reviewed and modified

– Was $2,404.000 funded from ARF

– Reduced to $1,650,000

30

Replacement of Light Vehicle 11-17 CYFS7 $ 60,000 CYFS ARF 20

(CH 46)

Fire’s capital program is derived from multi-year plans – their Asset

Management Plan and DC background study

CYFS projects are 40.65% funded by the Town of Aurora

31

Revised 2019 New Capital

Budget Requests

Sources of Funding

ARF DC`s General Other Total % of Total

In $ millions

Replacement $ 13.9 $ 0.2 $ 0.2 $ 3.3 $ 17.6 64%

Growth 2.1 5.9 0.4 1.2 9.6 35%

Other 0.1 0.2 0.1 0.4 1%

Total $ 16.1 $ 6.1 $ 0.8 $ 4.6 $ 27.6 100%

32

Items for reconsideration submitted by Council Members

No. Project Gross cost Funding Rating

Projects that can be fully funded

PARK2 Tree Canopy Increased Planting $ 90,000 Reserves 17

Riverwalk Commons Lighting PARK19 $ 55,000 ARF 15

Features

Kingdale Road Shoulder ROAD8 $ 70,000 ARF 19

Rehabilitation

Mobile Water Filling Station -WW1 $ 45,000 Water rates 15

Quench Buggy

33

Items for reconsideration submitted by Council Members

No. Project Gross cost Funding Rating

Cost recovery over time

Electric Vehicle Charging Station PLN8 $ 63,000 Revenue 16

Network

Potential tax impact

IT11 Analytics for Trails & Soofa Benches $ 12,000 Taxes 12

Paving of Limestone Walkways at PARK12 $ 125,000 DC’s & Taxes 10

Ken Sturgeon Park

RCFAC5 Sports Hall of Fame Expansion $ 25,000 Taxes 12

34

Next Steps

• January 29 – Revised Draft Capital List

• February 4 – Operating Budget to CoW

• February 25 – Draft Budget to CoW

• March 4 - Target date for Budget Approval

• Q2 - DC Background Study and Update

• Q2 - Asset Management Workshop

• September - ARF Strategy for

reconsideration

35